Analysis of ordering and pricing strategy for supply chain with consumer deliberation under supply uncertainty

Abstract

When new products appear on the market, consumer tends to have uncertainty about the usefulness of the product and the perceived value of the self. An effective way to eliminate the uncertainty is to deliberate carefully. In the market, retailer's promotions, price cuts, and advertisements all consider the deliberation of consumer. Conversely, consumer's deliberation behavior also has an impact on the decisions of manufacturer and retailer. In addition, there are various uncertainties in the real business environment. Based on the consumer's deliberation decision and considering the supply uncertainty, this paper establishes the basic model to study the ordering and pricing strategy of retailer and manufacturer and then obtains the optimal solution of this problem. Finally, this paper discusses the changes in manufacturer's revenue, retailer's revenue and consumer surplus under different deliberation costs and the optimal solution of the three. The results indicate that When the unit manufacturing cost is low, the manufacturer's optimal pricing strategy is a moderate pricing strategy. When the unit manufacturing cost is high, the manufacturer's optimal pricing strategy is a high-price strategy, and the purchase behavior comes from high-value customers. Furthermore, consumer deliberation is beneficial for retailer. If consumer chooses not to deliberate, the retailer bears the risk of channel supply uncertainty and obtains zero profit. On the other hand, if consumer deliberates, retailer can lock in high-value customers to make profits. Finally, consumer's deliberation decision depends on both retail price and deliberation cost. When retailer sets low retail price, consumer will purchase without deliberation. But, if the deliberation cost is too high, retailer and manufacturer have to bear some of the deliberation cost to motivate consumer to deliberate.